Genuine business transactions may qualify for exceptions under Section 40A(3); disallowances require sufficient evidence questioning genuineness.

ORDER

Per Laxmi Prasad Sahu, Accountant Member :

These two appeals are filed by the assessee against the separate Orders passed by the NFAC vide DIN and Order Nos.ITBA/APL/M/250/2024- 25/1073942400(1) dated 03.03.2025 and ITBA/APL/M/250/2024- 25/1073950534(1) dated 03.03.2025 for Assessment Years 2013-14 and 2014- 15 respectively.

2. The issue raised in both the appeals are identical except the figures. They were heard together and are disposed off by way of this common Order.

3. Briefly stated the facts of the case are that assessee is engaged in the business of real estate development of residential / commercial building. Shri. Nithish Kumar Shetty is the managing partner of the firm. Smt. Shruthi K. Shetty is the other partner in the assessee firm. The assessee filed return of income for the Assessment Year 2013-14 on 04.01.2014 declaring total income of Rs.1,28,680/- and for Assessment Year 2014-15 on 28.11.2014 declaring total income of Rs.6,38,700/-. The case was selected for scrutiny. Other case was reopened under section 147 of the Act. Notice under section 148 was issued on 07.02.2020 and other statutory notices were issued on different dates. On examination of the documents assessee has made cash payment of more than Rs.20,000/- towards expenditure incurred which are debited in the P & L A/c which is in violation of section 40A(3) of the Act for both the years and further addition was made under section 68 of the Act of Rs.8,26,000/- for the Assessment Year 2014-15. After considering the entire submissions, the AO assessed the total income for Assessment Year 2013-14 of Rs.40,53,080/- and for Assessment Year 2014-15 of Rs.1,65,00,980/- and passed Order on 26.09.2021.

4. Aggrieved from the above Order, assessee filed appeal before the CIT(A). After considering the entire submissions of the assessee, learned CIT(A) partly allowed appeal of the assessee and directed the AO to verify the cash payments made by the assessee vide Order dated 03.03.2025. Accordingly, the AO passed OGE dated 16.04.2025. The learned Counsel filed appeal for disputed amount towards labour expenses of Rs.3,41,850/- and payments made on Sundays / public holidays of Rs.6,42,380/- and difference of Rs.10,14,230/- under section 40A(3) of the Act. For the Assessment Year 2013-14 and for Assessment Year 2014-15 assessee disputed the amount of Rs.78,27,682/- for the cash payment towards materials purchased where bill received and VAT paid for Rs.37,42,684/-, labour expenses of Rs.11,57,443/- and payment made on Sunday and public holidays of Rs.29,27,555/-. Assessee has also filed rectification application under section 154 of the Act and the AO passed Order on 10.09.2025 for the Assessment Year 2013-14 in which amount was not allowed in OGE were confirmed and rejected the rectification petition filed by the assessee.

5. The learned Counsel reiterated the submissions made before the lower authorities and he has filed written synopsis as under.

Assessment Year 2013-14

1. Background of the Case

1.1. The appellant is a partnership firm which is engaged in the business of real estate development of residential and commercial buildings. Shri Nitish Kumar Shetty is the managing partner of and Smt. Shruthi K Shetty is the other partner of the firm. The appellant filed return of income for the said assessment year vide acknowledgement 859007050040114 declaring total income of Rs. 1,28,680/- and tax liability of Rs. 39,762/- which was discharged by way of TDS.

1.2. The Survey u/s 133A of the Act was conducted at the business premises of the appellant on 12.12.2017. During the course